Natural Gas ETF Heats Up on Cold Winter Outlook, Hurricane Disruptions

Natural gas-related exchange traded funds climbed Monday, with natgas futures reaching their highest level in almost two years, as traders prepped for the winter cold and evaluated weather-related disruptions.

The United States Natural Gas Fund (NYSEArca: UNG) increased 4.2% Monday and tested both its short- and long-term resistance at the 50- and 200-day simple moving average, respectively, as Nymex natural gas futures advanced 5.7% to $2.90 per million British thermal units and was heading toward its highest close since January 2019.

Natural gas markets typically strengthen during the winter months as heating demand helps lift prices. The latest forecasts already point to colder weather across much of the U.S. in the next few weeks.

“The cool shot late this week and through most of the 6-10 day [forecast]comes in stronger than expectations from last week,” Commodity Weather Group analysts said in a note.

Further adding to the natural gas strength, traders were also assessing the degree of supply disruptions after damage from Hurricane Delta, which made landfall as a Category 2 storm in coastal Louisiana on Friday, forced energy companies to shut some natural-gas production ahead of the storm, the Wall Street Journal reports.

Institutional investors and speculative traders have raised bets on natural gas and cut back on bearish wagers in recent weeks, with bullish long positions around their highest level in one-and-a-half years, according to Commodity Futures Trading Commission data.

According to the latest Energy Information Administration data for the week ended Oct. 2, stockpiles still remained 13% above their levels year-over-year and 11.5% above the five-year average levels for this time of year. The natural gas market suffered from weak demand this year as the economy came to a grinding halt after the coronavirus pandemic struck.

Looking ahead, analysts argue that the disruptions from Hurricane Delta and cold temperatures could contribute to a smaller-than-normal injection to stockpiles over the next few weeks, which could set up a bullish winter period that normally sees inventories decline.

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